When used responsibly, credit cards can help you manage expenses, establish a positive credit history, and take advantage of rewards and other benefits along the way. With so many different types of credit cards and card features available, it may make sense to carry more than one to maximize their value. Here’s what you should keep in mind if you want to add cards to your wallet.
Reasons for Having Multiple Credit Cards
Having more than one credit card can be a good idea if you can use plastic without overspending. If you do struggle with overspending, it may best to avoid credit cards altogether. But if you can keep your balance at bay, having more than one card in your wallet lets you:
— Mix and match bonus rewards categories.
— Diversify your rewards.
— Take advantage of various benefits.
— Have a backup.
— Build credit faster.
— Be prepared for emergencies.
[Read: Best Cash Back Credit Cards.]
Mix and match bonus rewards categories. Rewards credit cards often have varying rewards structures that can be tailored to your spending habits. Some, for instance, offer bonus rewards on groceries, gas, travel or dining out, while others give you a flat rewards rate on every purchase you make.
By using more than one credit card, you can ensure you earn the maximum amount of rewards on every purchase you make.
As an example, let’s say groceries and gas are major expenses for you. The Blue Cash Preferred Card from American Express offers 6 percent cash back on up to $6,000 spent annually at U.S. supermarkets, 3 percent cash back at U.S. gas stations and select U.S. department stores, and 1 percent cash back on all other purchases. If your monthly spending includes $500 at grocery stores, $200 at gas stations and $2,000 on everything else, you’ll earn $672 in cash back over the course of a year.
If, however, you combine the Blue Cash Preferred Card from American Express with the Citi Double Cash Card, which offers 1 percent cash back on all purchases plus another 1 percent back when you pay them off, you can effectively earn 2 percent cash back for the $2,000 you don’t spend at grocery stores and gas stations each month. Using the Blue Cash Preferred Card from American Express for grocery and gas purchases and the Citi Double Cash Card for all others, you’ll earn $912 each year instead, assuming you pay your balances in full.
Avoid going too far with this strategy, though, says Nathan Hamilton, director and industry analyst at personal finance site The Ascent. “Don’t worry about earning rewards in niche categories where you infrequently make purchases.”
Diversify your rewards. If you prefer travel rewards, having points and miles across multiple loyalty programs can come in handy. For example, having an airline credit card and a hotel credit card can help you get both your flight and your hotel stay covered on your next vacation.
And if you add a general travel credit card, you may be able to use your rewards for other travel expenses, too, such as cruise tickets, rental cars and airport parking.
Another reason to diversify your rewards is the value of travel rewards, which don’t always stay the same. If you put all your eggs in one basket, they could lose value if the program changes. But if you have points and miles with multiple loyalty programs, you can limit your exposure to devaluation in any one program.
Take advantage of various benefits. Many credit cards offer features like rental car insurance and zero-liability fraud protection. But some cards provide more benefits that can help you maximize the value you get out of them.
For example, a handful of premium travel credit cards offer perks like airport lounge access and travel credits. And airline and hotel credit cards often give you special benefits with the card’s co-brand partner, like priority boarding, free checked bags, free hotel stays or elite loyalty status.
” Travel protections and insurance are often overlooked perks that cost hundreds of dollars when purchased as standalone products,” says Hamilton. “But they’re on the house with the better travel credit cards on the market.”
[Read: Best Travel Rewards Credit Cards.]
You may be hard-pressed to find a credit card that has all the features you want. Having multiple credit cards can ensure you don’t miss out on all your favorite features.
Have a backup. Sometimes things don’t go as planned. If your card gets declined due to suspected fraud or someone steals your credit card information, having a backup card can be convenient.
“I was at a Mexican restaurant once and someone cloned my card and went on a Target shopping spree before I even made it home,” says David Gafford, marketing director at Shift Processing, a credit card processing company. “Even though they rushed a new card to me, I was still without a card for a few days. If I were traveling or overseas, I would’ve been stuck if I had just one card.”
Also, American Express and Discover aren’t as broadly accepted internationally as Visa and Mastercard. If you use one of the former normally, it’s a good idea to have one of the latter as a backup payment method for trips abroad.
Build credit faster. If you’re building credit from scratch or trying to rebuild your credit history, having more than one credit card can help you establish a more robust history.
“The more accounts you have in good standing, the better scoring models can crunch the data and assess your credit risk,” says Hamilton.
Not only does it show lenders that you can handle more than one credit account responsibly, but the more credit cards you have, the higher your available credit, assuming you’re not maxing out credit limits. That amount comes into play when calculating your credit utilization rate, says Gafford. The more available credit you have, the easier it is to keep that rate low, which can help improve your credit score.
Be prepared for emergencies. Rewards credit cards may charge higher-than- average APRs, so they’re not great if you plan to carry a balance or need to manage a surprise expense. Although cards that offer low APRs can be useful for these situations, they typically don’t offer robust rewards.
By having a good rewards credit card for your everyday spending and a backup card with a low APR, you can take advantage of rewards, but avoid paying too much in interest if you need to carry a balance from month to month.
Things to Consider Before Applying for Multiple Credit Cards
Carrying more than one credit card in your wallet can be a good thing for many reasons, but it’s not for everyone. Before you start applying for cards, it’s important to consider some of the drawbacks and how to overcome them.
Annual fees. Some credit cards charge annual fees. The more credit cards with annual fees you have, the harder it is to make the fees worth it. If you’re spreading your spending over multiple credit cards, it’s more difficult to earn enough rewards on each card to offset the annual fee.
As you consider new cards to add to your collection, take some time to determine whether you can get enough value out of them to offset their fees.
Organization. The more credit cards you have, the harder it will be to keep track of payment due dates and what you’ve spent on each card. Using budgeting software like Mint or YNAB can help you manage all your accounts in one place. Consider setting up automatic payments to avoid accidentally missing one.
Also, the more cards you have, the easier it will be to forget when to use which card. “I’ve seen some people put a little sticker on the back of each card just to remind them what the benefits are,” says Gafford.
Credit inquiries. Virtually every time you apply for a new credit card, the issuer will run a hard check on your credit report. A hard inquiry typically knocks less than five points off your credit score. But if you apply for multiple cards in a short period, it could signal that you’re too much of a risk, and card issuers may start denying your applications.
There’s no hard-and-fast rule for how much time should pass between credit card applications, but try to space them out by at least a few months to limit the compounding effect.
Potential for overspending. The more available credit you have, the more debt you can rack up over time. If you’re considering having multiple credit cards, make sure you can pay off each bill on time and in full every month.
If you tend to carry a balance or think you’ll be tempted to, it may be better to limit your risk and avoid credit cards altogether.
[Read: Best Credit Cards with High Credit Limits.]
How Many Credit Cards Are Too Many?
There’s no correct answer to how many credit cards are too many, so it’s important to know your limits. Before you take on a new credit card, make sure you can comfortably manage it along with your other cards, and do the math to find out if you’ll get enough value to make up for the card’s costs.
“The minimum amount of cards that I would recommend to someone who is fiscally and credit conscious is at least two,” says Gafford.
If you’re inexperienced with credit cards or credit in general, though, it’s best to start slowly to give yourself time to learn how to manage multiple cards at once. If you ever find that you’re overwhelmed, don’t be afraid to close one or more cards to avoid losing control.
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When Should You Have Multiple Credit Cards? originally appeared on usnews.com
